WELCOME !

Thanks for dropping in for some hopefully great business info and on occasion some hopefully not too sarcastic comments on the state of Business Financing in Canada and what we are doing about it !

In 2004 I founded 7 PARK AVENUE FINANCIAL. At that time I had spent all my working life, at that time - Over 30 years in Commercial credit and lending and Canadian business financing. I believe the commercial lending landscape has drastically changed in Canada. I believe a void exists for business owners and finance managers for companies, large and small who want service, creativity, and alternatives.

Every day we strive to consistently deliver business financing that you feel meets the needs of your business. If you believe as we do that financing solutions and alternatives exist for your firm we want to talk to you. Our purpose is simple: we want to deliver the best business finance solutions for your company.



Showing posts with label management buyout. Show all posts
Showing posts with label management buyout. Show all posts

Tuesday, June 16, 2020

Buyouts And Your Formula For Management Buyout And Successful Acquisition Funding In Canada Funding For A Management Buyout










Management buyout financing and acquisition funding are all about successfully engineering and executing on the finance solution - and we can pretty well guarantee our clients that ' one size doesn't fit all '! Let's dig in.

WHAT IS A BUYOUT? HOW DO BUYOUTS WORK?





These opportunities also aren't always coming up so the ability to buy a firm you're associated with or to capitalize on a business opportunity is often associated with the right timing. Funding for a management buyout is  one of the more common methods of owners exiting a business. Never have the words ' skilled management team ' meant more when it comes to the management buyout and purchase of a business. Both the resources of the company and capitalizing on leverage in a positive manner, allows you to use company assets as a portion of the collateral. Seller financing and external funding will often complete the transaction.


Most of the time, the management team takes full control and ownership, using their expertise to grow the business. An MBO/LMBO acquisition, which can be sizable, is usually funded by a mix of personal investors, external financiers and the seller, thereby completing this financing for control by management.

Lenders are often very comfortable with management buyouts " MBO's " given current management is experienced and understands the true operations of the company. An ' MBI ' (management buy-in )is not dissimilar, its simply the purchase of a company, often by external managers in the same industry.



Buyouts done well should be focused on a smooth transition to the new owner/owners. Numerous advantages come out of management buy outs, even when they are leveraged, as clearly new owners have already managed the company - that clearly reduces risk and the risk of employee departure would seem to be significantly reduced. In most cases the buyout can be a low key manner with less risk of being a concern to suppliers, unsecured lenders, and, most importantly, customers!


There should be careful planning around a logical process to move forward with the sale. First and foremost a proper business valuation must be considered and agreed upon in the context of a new shareholder agreement if there is more than one buyer. Now is the time to be thinking about and assessing who a logical ' senior lender ' might be on your transaction. It is essential to know your business financing and new capital structure will not impede growth plans in the newly acquired entity. Knowing you will have financial support on the transaction is obviously key.

A proper timeline should also be established, as in some cases there is an earn-out agreement between the owner and the new buyers. Whether non-financial business folks like it or not there has to be consideration given to issues such as taxes and related succession issues.

New buyers, having been management or closely aligned to the firm should be able to determine future profit generation and what type of financing will be needed for working capital and cash flow needs in the company buyout . This may well be the time to consider some form of downsizing of employees, assets, etc., as regrettable as those latter two issues might be. It is easy for your deal to get ' stuck ' on a myriad of non-financial matters relating to staff, clients, go-forward strategies, and of course the ever-important ' valuation '.

BUSINESS VALUATION / WHAT IS THE BUSINESS WORTH?


Purchasers need expert help if they are not qualified to come up with a problem valuation on the management buyout. Suffice to say that business owners always have a figure on what they think their business is worth! They tend to have some ideas on the value of your company target in the business valuation process.

Valuing the business can be explained as a combination of art and science as many experts say, let alone the human nature aspect of optimism of current owners. There are several ways in which you can tackle the job of addressing the value and the financing of that value - here also is the time to consider a help of an experienced Canadian business financing advisor . Formal business valuations can also be purchased - they are costly but certainly might make sense on larger transactions.

Business valuations will always take into consideration some basic issues - they might include profit generation, future growth potential, and the overall asset mix on the balance sheet.

Different outcomes arise based on the method of value you are looking at. If the business is currently generating good profits and solid return on equity those value measures are on top of the level of actual fixed assets. Your cash flow forecast as it relates to past results should be fundamental in your analysis. Having access to historical financial statements is key, as that allows for a ' smoothing ' of sales and earnings. In business, the past is not always predictive of the future.

The concept of using ' multiples ' is another reliable way of determining value. Key financial areas such as ' EBITDA ', sales, and cash flow can all be analyzed to determine a range in which a final cost can be substantiated.

EXAMPLE - Some industries are valued based on a multiple of sales - that number might be 2 . So a company doing 3 Million in revenue might include a value of 6 Million in its final valuation assessment. The key is to ensure you are comparing business multiples in the same industry! Here publicly available date may be very beneficial.

Hard assets play a key value in the final valuation summary. Many industries, as opposed to service industries, are very capital intensive. Businesses with high asset values sometimes generate lower returns on equity due to the nature of the company. In some cases appraisals might well be undertaken to determine actual market and liquidation value, and there will sometimes be major differences in these two numbers.



Every business based on its financing structure can handle only so much debt - a typical rule of thumb in many industries is that a debt to equity ratio of 2:1 is optimal. Still, every industry is different as some might be very capital intensive. The amount of debt your firm carries as well as how it finances cash flow will ultimately affect sales volume growth and the potential for the firm to grow substantially.

As initial planning of the takeover proceeds a business plan should be developed, which has uses for both the owners from a planning perspective, but more so for lenders. Cash flow growth should be realistic and conservative - this is not a marketing document of the time for a ' hockey stick' growth curve for sales projections.

At 7 Park Avenue Financial our business plans for clients include management overview, industry overviews, cash flow projections, and many other vital aspects of what lenders are looking for in a plan. Those details ensure acquisition funding success.

In some cases in a shareholder buyout  the owner might agree to a seller financing aspect to the transaction - this is usually well received by lenders who now know the seller has confidence in the management team to take the company forward successfully.



In some cases you might be looking at purchasing a franchise directly from the franchisor, or perhaps a current owner who wishes to sell. The Canadian franchise industry can only be called explosive and it plays a vital role in the economy of Canada. The ability to 'partner' with a franchisor successfully helps guarantee a good acquisition. Some very specialized financing can help complete such a purchase.



Let's examine some practical tips and strategies for getting ' unstuck ' on a transaction such as this.



Obtaining seller financials is key to any sort of management buy out or leveraged buyout. Key point: Many alternative finance solutions are available to buy a business, but they rely on a decent level of financial transparency on how the company is doing, what the actual value of assets is, etc. The ability to distinguish between internal and external financials, as well as obtaining current interim financials is critical. At 7 Park Avenue Financial we have seen examples whereby senior lenders insisted on seller financing as a part of the owner exit strategy  to show all parties have a commitment to the deal.


Purchasers and your financiers will want a proper representation of specific assets and liabilities on the balance sheet. Great care should be taken in qualifying key assets such as accounts receivable... from a simple point... are they collectible?!



Naturally there is no guarantee that any existing or future A/R item will in fact be collectible, and no one is going to guarantee that for you. Some reliable credit checks on the quality of the A/R base is highly in order, as well as looking at historical payment trends of the client base. You also want to ensure there is no right of set off against the receivables, and it is certainly not uncommon for us to see the A/R as often the most significant asset on the balance sheet.



An excellent strategy for Purchasers contemplating a leveraged management buyout funding is to make some sort of agreement on the ability to ' rejig ' the final price subject to A/R collectability. Naturally, owners of the company might be reluctant to do that.



Is there anything trickier than ' inventory ' with respect to classifying quality and the actual value of inventory, which might, of course, be raw materials, work in process, or finished goods. Make a solid effort to quantify the quality of the inventory you are purchasing for issues such as obsolescence.



Plant and equipment should always be appraised in some manner on funding a management buy in. This quite frankly protects all parties, and we urge clients to complete an appraisal that includes some component of fair market value, orderly liquidation value, and forced liquidation. Those numbers will vary significantly in any appraisal and play a key role in the way in which assets are financing in a real management buyout. It goes without saying of course that the purchaser should ultimately be comfortable with the quality and condition of the fixed assets on the balance sheet they are contemplating financing.



Don't forget also to look at any leases or contracts that might be in place via the current business owner. You will want to make sure these are assignable to yourself in the event of a completed sale.



How Then Is Acquisition Finance Most Commonly Achieved in Canada? Financing Management Requires Specialized Financing Expertise



Purchasers have a variety of options to consider for successful management buy outs. They should be expected to also ensure there is a personal equity component in the transaction, which typically might be in the 20% range, although that percentage varies greatly, especially when the deal presumes high leverage. That personal investment is viewed positively by your lenders, hence the popular saying ' skin in the game '. Some owners might well consider refinancing or selling some personal assets to augment the owner equity.

Naturally bank loans are very commonly the first ' go to ' by many purchasers, but alternative financing solutions are becoming extremely popular, given the rise of non-bank asset based lending solutions in Canada. Banks of course have the lowest cost financing re interest rates, which are at historic lows. In smaller transactions one key lender might be involved while on larger deals financing might need to be 'cobbled together ' with more than 1 funding source.

We have previously referenced vendor take backs, ' VTB's'. This ' seller finance ' strategy is highly flexible and can often be structured creatively re payback terms, rates, etc. The essence of seller financing is its ability to reduce the cost purchasers must pay for the business. Depending on how the deal is structured it also gives the seller some input until the VTB is terminated via final payout.

ESOP'S
, namely employee ownership plans might also be a financing consideration for more sophisticated sales on larger firms.

Mezzanine financing
is a natural complement to any senior lending facility and can bridge the financing gap. If a business can demonstrate good cash flow mezzanine debt finance should always be considered.The key benefit of mezzanine funding is that it will allow your other external lenders to consider more financing participation in your deal, especially when it comes to lbo financing where leverage is higher .

Some companies may wish to look at public market financing,or as an alternative, private equity but purchasers should recognize that these methods are time consuming and dilute ownership.


If there is a bottom line in management buyouts it's merely to ensure you consider all aspects of commercial business financing that might be available. It is critical for management to assess how operations will be funded on an ongoing daily basis.



HOW TO FINANCE A MANAGEMENT BUYOUT



Govt guaranteed loans - The Candian Government Small Business Loan program is an excellent way for smaller firms to be acquired, including franchise finance opportunities.



Asset Based Lenders - (' ABL ' ) These commercial finance firms offer day to day funding for operations and are non-bank in nature. Solutions include a/r financing to address the working capital financing component of the collection of your receivables. Solutions could consist of traditional ' factoring ', but at 7 Park Avenue Financial our recommended solutions include Confidential Receivable Financing, allowing you to bill and collect your accounts without a third party intrusion.  'ABL' is excellent when it comes to a  leveraged management buyout. Business worth is not always the same as asset worth, and ABL expertise has a high value.

Inventories can also be financed as a part of an asset based line of credit solution that allows your firm to combine the financing power of a/r, inventory, and equipment into one borrowing facility. In almost all cases this delivers more cash flow than a bank facility, but is more expensive.

Purchase Order Financing has risen in popularity as more firms experiencing large new orders and contracts that otherwise might not be financeable is now possible. Direct payment to your suppliers is facilitated through this process.


Private Equity Funding- Private Equity funds typically raise money from large investors and acquire stakes in firms with a focus on improving operations through cost cutting and effective management. In Canada private equity deals tend to be for substantial transactions outside the normal MBO process


Canadian Commercial Chartered Banks - Banks are the ' go to ' for many businesses due to their attractive rates and tremendous capability in financial offerings. Many firms are unable to access bank financing because the banks have precise requirements around collateral and overall business qualifications required to get funding, including personal guarantees, outside collateral, and solid personal credit history.


Business Development Corporation Term Loans - The Government Of Canada's Crown Corporation non - bricks and mortar bank provides term loan financing for business acquisitions. Their subordinate financing solutions are very complementary to a deal.



SUMMARY OF BUSINESS FINANCE SOLUTIONS FOR A MANAGEMENT BUYOUT



At the end of the day funding for the purchase by management will depend on size of your deal, the reputation of the company in its industry, as well as the assets and cash flow that will propel the company forward.


Buyouts are becoming more popular these days due to generational succession. The current management of many firms is a logical way to ensure a company's history and reputation will continue. Even a leveraged buyout where a large portion of the company assets can be collateral when financed properly can guarantee the business moving forward.

Well executed mgmt. buyouts have a focus on future profitability and ensuring the right amount of financial leverage is being used. If financing costs will eat up all the cash flow productivity and sales growth might be impaired. Otherwise major cost-cutting will have to be initiated, never a good sign. Doing the right amount of financial analysis and utilizing outside help on cash and debt financing needs is vital.

Companies that are distressed or financially challenged can still be financed, but they are often only able to achieve financing via alternative finance means. Whether the company is doing well or is not still requires the new owners to ensure that too much debt is not taken on and operating financing on a day to day basis is fully available.



An excellent transaction occurs when you have a company that is both profitable and has key assets that are financeable, i.e. the receivables, inventory, and equipment we highlighted earlier. That isn't always the case, and as we noted, every business and industry is different. Speak to a trusted, credible, and experienced Canadian business financing advisor for assistance in funding the purchase and successfully completing your buy-in via leveraged funding.





7 Park Avenue Financial :

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769


Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !




7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.


' Canadian Business Financing With The Intelligent Use Of Experience '


ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.







7 Park Avenue Financial/Copyright/2020






















































































Buyouts And Your Formula For Management Buyout And Successful Acquisition Funding In Canada



Management Buyout And Acquistion Financing

Monday, June 3, 2019

Buying And Financing A Business Acquisition . Loans To Finance Existing Businesses










INFORMATION ABOUT BUSINESS ACQUISITION FINANCING - BUYING AND FINANCING A BUSINESS IN CANADA





Buying and financing a business acquisition is one of the major challenges of firms in the SME (Small and medium enterprise) sector in Canada.
Unlike the big boys who have access and funds available to hire expensive talent to complete the transaction the Canadian SME business owner and financial manager has the desire to complete a transaction , but needs help and information they traditionally don't have immediate access to .

Naturally acquisitions can be completed via an all cash purchase, the reality is that most businesses don' have the capital to complete a deal in that manner. And another thing, completing a transaction without acquisition loans and funding doesn't make perfect sense all the time because you are not taking advantage of leverage and return on investment.

So what information is in fact required as you are contemplating buying that firm? Is there in fact a ' short list ' of information? A great start would be some basics such as a business plan or executive summary which profiles the transaction.

Other critical data are the financial statements of the firm you are acquiring, some cash flow analysis, and most importantly, some financial modeling around the future profitability and cash flow generation of the combined business.

It’s those cash flows of course that will repay your business acquisition loans and financing!

A key concept around your deal is the equity component in the transaction. There has to be some reasonable equity in the combined firm, and that can come from your firm, the assets of the firm you are acquiring, or potentially some new equity and ownership participation.

So what can go wrong in a transaction like this? Well without the assistance or information we have spoken of, lots!

Timing is always a key component of your deal. The closing of your transaction can be driven by external deadlines, the deadlines imposed by the seller, or your own commitments to closing. Bottom line, leave enough time - it’s as simple as that.

A lot of transactions we look at have some huge ' gaps ' of missing information. To complete a proper purchase and financing a business acquisition properly with the right amount of loans, debt, etc requires all the missing pieces in the financial puzzle to be on the table.

So how can the acquisition be financed? There are some great and innovative strategies you can utilize to complete a deal successfully. They include and asset based lending scenario which monetizes the assets of the sellers firm. Smaller transactions under 350k can be efficiently handled via the Canadian CSBF loan program which has solid rates, terms and structures.

Business people need to remember also that you need to borrow enough to not only acquire the business, but to ensure you have the working capital and access to liquidity to grow the firm.

There are some great reasons to consider buying and financing a business. Some typical reasons include diversification, the ability to grow sales and reduce costs on a synergistic basis, and in some cases you just might have discovered a ' jewel in the barn ' - the type of firm that is undervalued or has a motivated seller.

Your key goals are to analyze the operating activities of the firm to be acquired, ensure you have a financing plan in place, and, as we said ensure you have the capital ready to ensure proper cash flow and replacement and upgrade of any needed assets.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your business acquisition loans and financing needs.






7 Park Avenue Financial :

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769


Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .


' Canadian Business Financing With The Intelligent Use Of Experience '


ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.



Tuesday, August 16, 2016

Acquisition Funding In Canada : Financing The Management Buyout Via Specialized Finance











One Size Fits All Financing Doesn’t Work In Mgmt Buyouts & Acquisition Finance


OVERVIEW – Information on management buyouts in Canada. Acquisition funding via a leveraged or traditional finance solution requires addressing several key issues




Management buyout financing and acquisition funding is all about successfully engineering the executing on the finance solution - and we can pretty well guarantee our clients that ' one size doesn't fit all '! Let's dig in.

These opportunities also aren't always coming up so the ability to buy a firm you're associated with, or to capitalize on a business opportunity is often associated with the right timing.

It's also very easy to get ' stuck ' on a transaction such as this, as a myriad of non financial issues also come up - employees, customers, strategies, valuation, and on it goes ..

In some cases you might be looking at purchasing a franchise directly from the franchisor, or perhaps a current owner who wishes to sell. The Canadian franchise industry can only be called explosive and it plays a key role in the economy of Canada. The ability to 'partner' with a franchisor successfully helps guarantee a good acquisition. Some very specialized financing can help complete such an acquisition.



Let's examine some practical tips and strategies for getting ' unstuck ' on a transaction such as this.

Obtaining seller financials is key to any sort of mgmt buy out or leveraged buyout. Key point : Many alternative finance solutions are available to buy a business, but they really on a decent level of financial transparency on how the business is doing, what the actual value of assets is, etc. The ability to distinguish between internal and external financials, as well as obtaining current interim financials is key.


Purchasers and your financiers will want a proper representation of specific assets and liabilities on the balance sheet. Great care should be taken in qualifying key assets such as accounts receivable... from a simple point... are they collectible?!


Naturally there is no guarantee that any existing or future A/R item will in fact be collectible, and no one is going to guarantee that for you. Some solid credit checks on the quality of the A/R base is highly in order, as well as looking at historical payment trends of the client base. You also want to ensure there is no right of set off against the receivables, and it certainly not uncommon for us to see the A/R as often the largest asset on the balance sheet.

A great strategy for Purchasers contemplating a leveraged management buyout funding is to make some sort of agreement on the ability to ' rejig ' the final price subject to A/R collectability. Naturally owners of the company might be reluctant to do that.

Is there anything trickier than ' inventory ' with respect to classifying quality and true value of inventory, which might of course be raw materials, work in process, or finished goods. Make a solid effort to quantify the quality of the inventory you are purchasing with respect to issues such as obsolescence.

Plant and equipment should always be appraised in some manner on funding a management buys in. This quite frankly protects all parties, and we urge clients to complete an appraisal that includes some component of fair market value, orderly liquidation value, and forced liquidation. Those numbers will vary significantly in any appraisal and play a key role in the way in which assets are financing in a real management buyout. It goes without saying of course that the purchaser should ultimately be comfortable with the quality and condition of the fixed assets on the balance sheet they are contemplating financing.

Don't forget also to look any leases or contracts that might be in place via the current business owner. You will want to make sure these are assignable to yourself in the event of a completed sale.

How then is acquisition financing most commonly achieved in Canada.
Solutions include:

Govt guaranteed loans

Asset based lenders

Private equity funding

Canadian commercial chartered banks

Business Development Corp term loans


A great transaction occurs when you have a company that is both profitable and has key assets that are financeable, i.e. the receivables, inventory and equipment we highlighted earlier. That isn't always the case, and as we noted, every business and industry is different .Speak to a trusted, credible and experienced Canadian business financing advisor for assistance in successfully completing you buy in via a leveraged funding.


Stan Prokop
- founder of 7 Park Avenue Financial
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
http://www.7parkavenuefinancial.com


7 Park Avenue Financial

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office
= 905 829 2653


Email = sprokop@7parkavenuefinancial.com


' Canadian Business Financing with the intelligent use of experience '


ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.






Saturday, August 10, 2013

Management Buyout Financing Needed. Here’s Some James Bond Like Advice On Canadian Mgmt Buy Out Strategies






Are You Ready To Ace Buyout Financing ?



OVERVIEW – Information on successful management buyout strategies . How does the mgmt buy out work best?



Management Buyout . It's been going on for a very long time in business. In effect you are acquiring the company for which you are a current employee or perhaps minority owner.

How then does this financing technique work and how you make a Mgmt buy out seem like a deft James Bond maneuver? Let's dig in.


Managers and partial owners consider the strategy for a wide variety of reasons. Practically speaking managers and current partial owners know the company, and its potential, referring mostly of course to the financial potential of future profits. Current owners often want to see the legacy of their company continue, as well as addressing employee issues and needs.

Numerous financing vehicles are available to properly execute a buyout. They include debt options, external private equity , as well as monetizing the assets of the company to a degree that still allows it to remain hopefully profitable , cash flow positive and without an onerous debt load.

We're mostly talking here about private transactions. Publicly listed companies can of course be acquired in much the same manner - but that’s a different kettle of fish for another day.

There are some solid tax advantages for a management buy out, and obviously the appeal to the current owners is that they have finally reached the ' liquidity event ' they had envisioned. While private equity firms and low interest rate environments dominate a lot of transactions it’s really the strong growth or turnaround prospects that drive a lot of ' MBO ' (management buyout) deals in Canada. And when you have good managers and new committed owners all sorts of great financial results are possible.

Great financial results happen when you have a proper mix of debt and equity in the final transaction. It's really the same concept as a home mortgage, where we as home owner’s manager our personal financial situation properly when our homes have the right amount of equity as well as the right debt / interest rate on our homes.

Debt however is the proverbial two edged sword.
Using other peoples money has a lot of upside, as well as... you guessed it, downside! When using a lot of debt to finance a transaction the risk of default on a deal rises significantly. . However, with properly structured debt owners can realize the benefits of downsizing, cutting costs, investment in new fixed assets, etc.

Management buyouts can be financed by non bank asset based lending facilities, Canadian chartered bank term loans and revolving credits, and even unsecured debt in the form of mezzanine and sub debt cash flow loans. Small transactions in Canada can even be fully financing via the SBL Govt business loan.

All of the above financing vehicles have different levels of risk and structure. It goes hopefully without saying (we’ll say it anyway!) that a part of your transaction must include your own owner equity component... Deals on Mgmt buy outs can be simple or complex - depending more often than not on the size of the deal. Key issues include secured assets, repayment terms, equity components, and cash flow coverage.

Don't forget also that often the current owner’s willingness to help finance the buyout via a partial vendor take back ' VTB' can often make a deal happen more quickly and successfully.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in developing a management buy out strategy that reaps advantages and minimizes risk to all parties.




Stan Prokop
- founder of 7 Park Avenue Financial

http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :


7 PARK AVENUE FINANCIAL = MANAGEMENT BUYOUT FINANCING EXPERTISE





CONTACT:

7 Park Avenue Financial

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com






























Wednesday, October 26, 2011

Buying A Company ? B I M BO Strategies for A Canadian Leveraged Buy in and ( MBO ) Management Buyout






Buying a Company Using Its Asset Base and Cash Flows


Information on the leveraged buy in and management buyout strategy (MBO) for Canadian Small and Medium Size businesses in Canada




B I M BO? Don't panic... it’s not what you think. That’s the acronym that the finance folks use for whats known as ' Buy in Management Buy Out ' for business owners and management who are contemplating purchasing their own or an existing company. Let's look at MBO 101 with a focus on helping small and medium sized businesses in Canada who don’t necessarily have access to the resources and talent to properly complete such a transaction on their own.

We're quite sure that hundreds, perhaps thousands of business people in Canada are at any one time contemplating purchasing their own firm, or one in which they have targeted or are associated with . Larger corporations of course have access to tons of talent with respect to lawyers, advisory firms, etc when they contemplate this type of deal. Typically we open the business news page and see headlines announcing such purchases that have either been done behind close doors or sometimes catching one of the parties totally off guard.

Let's focus on some core basics that small firms in Canada can focus on when it comes to a management buyout or leveraged buy in.

As a business person considering an MBO focus initially on two concepts, debt and equity. In spite of the negative connotations of ' debt ' you can still acquire a firm in a very successful manner by using a combination of either bank loans or other asset based debt that use the assets of the company . Just make sure of course that the right amount of due diligence is done of making sure that you can meet any interest and loan payments out of the cash flows of the on going business! That can't be overemphasized!

By using just a small amount of equity, either your own new equity or existing equity in the new business going forward you are able to leverage a great transaction... as long as your new debt to equity ratio is still reasonable. Debt to equity ratios vary by industry ... a very typical debt to equity ratio for a manufacturing type company is 2:1.

When you get overly aggressive on debt in the excitement of finalizing your transaction you of course run the risk of a business failure. In a perfect world (and trust us, we know its not) you end up with a solid management team, a reasonably financed firm, and lots of potential for profit and growth via new synergies of management, etc.

Business people should also be considering at an early stage how they someday will exit from the transaction. They often see a huge return in the future on the risk and capital they have put on the table, but need to understand how that will ultimately be monetized.

The bottom line - MBO... Our ' management buyout ' or leveraged buy in is often a fabulous opportunity for managers and owners to take advantage of a great business opportunity based on their skills, knowledge, etc. Using assets already in place allows you to capitalize on a great opportunity. Just think of it, you have used the assets of an existing company to pay for it. That’s sometimes called ' bootstrapping’

So, can a great BIMBO strategy work? Absolutely, and it can be financed via a bank, asset based lender, private equity firm or some other more esoteric types of financing. Speak to a trusted, credible and experienced Canadian business financing advisor for help with your BIMBO!!





Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing .Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/leveraged_buy_in_management_buy_out_mbo.html

Sunday, October 23, 2011

Get Unstuck On Funding Your Management Buyout ! Financing A Canadian Leveraged Buy In Practically






Proposing A Management Buyout ?


Practical advice on funding a management buyout in Canada . Financing a Leveraged buy in via asset financing strategies .





Successfully engineering and completing the funding of a management buyout via a leveraged financing is a challenging issue for Canadian business people and financial managers who wish to complete a buy in financing to a company they are associated with.

Let’s examine some practical tips and strategies for getting ' unstuck ' on a transaction such as this.

The best ' tool ' you have in an LBO /MBO type deal is of course the seller’s financial statements. That's where it all begins. While year end statements are a must it goes without saying that interim financials help you piece together and complete the story as ' up to date '.

Purchasors and your financiers will want a proper representation of specific assets and liabilities on the balance sheet. Great care should be taken in qualifying key assets such as accounts receivable... from a simple point... are they collectible?!

Naturally there is no guarantee that any existing or future A/R item will in fact be collectible, and no one is going to guarantee that for you. Some solid credit checks on the quality of the A/R base is highly in order, as well as looking at historical payment trends of the client base. You also want to ensure there is no right of set off against the receivables, and it certainly not uncommon for us to see the A/R as often the largest asset on the balance sheet.

A great strategy for Purchasors contemplating a leveraged management buyout funding is to make some sort of agreement on the ability to ' rejig ' the final price subject to A/R collectibility. Naturally owners of the company might be reluctant to do that.

Is there anything trickier than ' inventory ' with respect to classifying quality and true value of inventory, which might of course be raw materials, work in process, or finished goods. Make a solid effort to quantify the quality of the inventory you are purchasing with respect to issues such as obsolescence.

Plant and equipment should always be appraised in some manner on funding a management buys in. This quite frankly protects all parties, and we urge clients to complete an appraisal that includes some component of fair market value, orderly liquidation value, and forced liquidation. Those numbers will vary significantly in any appraisal and play a key role in the way in which assets are financing in a real management buyout. It goes without saying of course that the purchaser should ultimately be comfortable with the quality and condition of the fixed assets on the balance sheet they are contemplating financing.

Don’t forget also to look any leases or contracts that might be in place via the current business owner. You will want to make sure these are assignable to yourself in the event of a completed sale.

In Canada you can complete a successful funding of a management buyout via an asset based lender, or a private equity firm. A great deal occurs when you have a company that is both profitable and has key assets that are financeable, i.e. the receivables, inventory and equipment we highlighted earlier. Speak to a trusted, credible and experienced Canadian business financing advisor for assistance in successfully completing you buy in via a leveraged funding.




Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing .Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/funding_management_buyout_buy_in_leveraged.html